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Journal Issue: Opportunity in America Volume 16 Number 2 Fall 2006

The Role of Higher Education in Social Mobility
Robert Haveman Timothy Smeeding

Summary and Policy Options

Although overall educational attainment in the United States has risen slightly, the gains are concentrated among high-income children.76 While the effects of the college selection process have contributed to the substantial and growing concentration of children from higher-income families among the student body, the erosion of public spending for higher education has also played a role. As a result, these institutions have had to rely on some combination of increases in private giving, increased use of own-source funds such as endowments, reductions in costs and services, and increases in tuition and associated fees. This last development works together with the admissions and selection process to reduce access— especially for the offspring of less affluent families—to college and university (and especially community college) education. Finally, public educational assistance has tilted away from youth from low-income families toward the most meritorious and highly qualified youth, and therefore toward those from middle- and higher-income families. These developments come at a time when success in the labor market and in other aspects of social and economic life increasingly requires postsecondary training.

In response to these developments, colleges and universities, together with state governments and secondary schools, must develop financing structures that will both maintain quality and increase access for students from lower-income families. The policies we suggest are premised on the belief that students from high-income families will fare well regardless of ability, so that more of the resources available to secure college admission and matriculation should go to students from lower-income families.

The United States has a uniquely mixed system of public and private higher education. In most other rich nations, where higher education is more universalistic and almost totally public, the cost of higher education is more fully subsidized, but homogeneity may also breed mediocrity. Still, the experiences of these countries can be instructive, as can the U.S. experience. Our policy recommendations are deliberately bold and are designed to increase educational opportunities for low- and middle-income students and therefore to increase intergenerational social and economic mobility. We take as given a pool of high school graduates who want more education, even if they are not fully and equally well prepared for it.

Strengthen Student Preparation
Our first recommendation is to strengthen links between K–12 and postsecondary education and to place a greater emphasis on college preparatory coursework in the former. Students should begin school on a more equal footing, and universal high-quality preschool for all children may be a first step toward that goal. Middle and secondary schools should better prepare their students for higher education in its many forms.

Reducing Scope through Partnering
Colleges and universities should get out of the business of providing services and functions for which they do not have a comparative advantage. 77 These services include remedial education (which at best should be left to community colleges or contract providers), but also dormitories, food services, and backoffice operations. Colleges should instead focus on the core competencies in which they specialize. This paring back would be coupled with increased partnering with other service providers—private or public—who specialize in these services. Tuition charges would then be able to reflect the real cost of providing the core educational services, and students and their families could arrange for these related services in separate markets. In addition to reducing the costs of colleges, such a program would probably increase the range of choice available to the potential consumers of these auxiliary services.

Pricing and Performance in Public Higher Education
The vast majority of low-income students will be educated by public universities. Although tuition at public institutions has been rising, it still falls well short of reflecting the real resource cost of the educational services provided. As a result, students who pay the full tuition—largely students from more well-off families—are receiving an implicit subsidy. One somewhat dramatic approach would be for institutions to simultaneously price tuition close to real costs and use the bulk of additional revenue to provide direct student aid targeted at students from low-income families. In addition to addressing the current inequity in the allocation of educational services, such an approach would tend to ration the limited supply of educational services (student slots) to those who value these services the most. Such a solution would also require a heavy advertising plan to make sure that lower-income families understood that the net price of college was far below the sticker price, which is often the only information they have to react to.78

Pay for performance is another innovation for public universities to consider. Today, state government financial support to public institutions typically comes in the form of a lumpsum appropriation. As an alternative arrangement, the level of state government support could be tied to the performance of institutions, such as retention rates, graduation rates, the ability to limit cost and tuition increases, or increases in their share of students from below-median-income families. Such an arrangement would have desirable incentive effects and would redistribute resources from low- to high-performing schools. While a number of states have started to set performance benchmarks for state universities, so far they have been reluctant to tie state appropriations to performance. But why not subject postsecondary education to the same pay-for-performance pressures as elementary and secondary education?

Limiting Public Subsidies to Wealthy Private Schools
At present, a substantial amount of federal subsidies (guaranteed student loans, Pell grants, tax subsidies) is made available to students who attend very wealthy institutions. These subsidies could be capped for wealthy universities that are able to increase their available student assistance. The savings of this policy could be redirected to students attending less well-endowed schools, both public and private.

Substituting Public Direct Student Assistance for Institutional Support
As four-year colleges and universities have become increasingly selective in student recruitment, students with the highest qualifications— most often those from the highest-income families—have been the targets of recruitment efforts and the recipients of increased merit-based assistance. This trend reflects a variety of forces, including the desire to increase institutional rankings in prominent publications, such as U.S. News and World Report; the tastes of faculty and other institutional stakeholders; and the pursuit of financial gains associated with the rapid increases in federal merit-based assistance that have been targeted on higher-income families. These forces are at play in both public and private higher education.

In response to this trend, state governments (as well as the federal government) could redirect to students the financial support they now provide to colleges and universities, say, in the form of higher education vouchers. The direct student assistance could be targeted toward students from lower-income families. Such an arrangement would not only enhance equity but also require schools to compete for students and redirect their attention toward the tastes and demands of their student constituents and away from those of other institutional stakeholders, such as faculties.

Lessons from Abroad: Redirecting Public Support for Higher Education
Several countries are experimenting with a relatively new form of publicly supported student aid, known as income-related loans. In this system, former students repay debt contingent on their future incomes, meaning that their ultimate capacity to pay is given weight, and then only up to a limited point. In other words, loans are repaid by taxing post-school earnings to recover only the costs incurred, plus a small interest rate. Australia and New Zealand, in particular, are in the forefront of these policies. The especially successful Australian program is being adopted in Asian nations as well.79

The U.S. system of higher education reinforces generational patterns of income inequality and is far less oriented toward social mobility than it should be. If higher education is to improve the chances for low- and middle-income children to succeed, the current system must be dramatically redirected, and the sooner the better. Big problems, such as those outlined above, require innovative thinking and bold reform.